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25th, 26th & 27th June 2016

Singapore Economy

Brexit vote a turning point: PM Lee

Britain's vote to leave the European Union is "a turning point", said Prime Minister Lee Hsien Loong, as he wished the country well amid the uncertainty that lies ahead. The referendum result - 51.9 per cent of about 33 million voters favoured leaving the union - reflects anxiety over immigration, resentment at having to accommodate European partners, and a desire to assert British identity and sovereignty, he said. Other developed countries also face similar challenges as Britain, he noted. "We all live in a globalised, interdependent world. The desire to disengage, to be less constrained by one's partners, to be free to do things entirely as one chooses, is entirely understandable," he said in a Facebook post yesterday.

Britain's decision to leave the European Union (EU) has raised "profound questions" revolving around politics, Deputy Prime Minister Tharman Shanmugaratnam said on Facebook yesterday. Markets will react negatively to the news and the loss of growth in Britain and Europe in the next few years will ripple and hurt the world, including Asia and Singapore. But the reactions "will not be like 2008 when the house came down", he added, referring to the US subprime crisis that led to a global financial crisis which threatened to bring down large financial institutions.

Britain will need to negotiate new agreements with its trading partners, including Singapore, as it will no longer be covered by existing European Union trade agreements, after Britain's shock vote to exit the world's largest trading bloc. Responding to queries from The Straits Times, the Ministry of Trade and Industry (MTI) said the full impact of Brexit will depend heavily on Britain's pending trade arrangements with the EU and other markets, including Singapore. Britain's relationship with the EU and its antecedents goes back some 40 years.

The close ties between Singapore and the United Kingdom will remain unchanged after Thursday's Brexit vote. Britain will continue to be open to investments and remain committed to global trade and security. These were the assurances given by British High Commissioner to Singapore Scott Wightman yesterday when he addressed the media a day after the results of the historic referendum in which the UK voted to leave the European Union (EU).

The prospect of the United Kingdom leaving the European Union represents another risk that central banks around the world now have to contend with, even as they collaborate to combat a "risky trinity" that may destabilise a fragile global economic recovery. Terming Friday's results of a UK referendum that favoured a UK-EU split, or "Brexit", as an "additional adjustment", Jaime Caruana, general manager of the Bank for International Settlements (BIS), or the "bank for central banks", said on Sunday: "The world economy conveys a sense of unfinished adjustment and fragile confidence." Mr Caruana was speaking at the bank's annual general meeting in Basel, Switzerland, where it launched its 86th annual report. This comes just three days after Britain voted to leave the EU.

Shocked investors pummelled risk assets and pounded the sterling on Friday after Britain's surprise vote to leave the European Union fanned fears of a summer of discontent. The reaction was especially pronounced because positions headed into Thursday's referendum were mostly betting against a so-called "Brexit". Citi noted in a report: "This represents a major surprise as predictions markets had been assigning a 25 per cent likelihood to a 'Leave' win on the morning of June 23, and risk assets had rallied noticeably up until polls closed."

Asian currencies were spared much of the turmoil their British and European counterparts experienced on Friday. But as markets roiled from the turbulence brought on by a United Kingdom vote to leave the European Union, observers called for a more concerted response from policymakers to smoothen expected volatility in currencies in this region.

Gold surged to its highest level in two years while oil slumped in the wake of the vote by Britain to leave the European Union. And even as analysts predict the gold price to rise even further, buttressed by safe-haven demand, gold dealers in Singapore were already seeing increased levels of activity on Friday. The gold spot price jumped to as high as US$1,356.86 an ounce on Friday noon as results of the vote broke.

Despite the slowdown in the growth of manufacturing output in May, economists are hopeful for an above-satisfactory performance for the second quarter, largely because of the high growth in April. The Economic Development Board (EDB) released industrial-production data showing May's preliminary manufacturing output to have risen by a mere 0.9 per cent from a year ago. Excluding biomedical manufacturing, output fell 2.3 per cent.

The historic divorce of Britain and the European Union dealt a blow to many property counters on Friday, especially those with a major UK presence. But property companies listed here are still optimistic of the long-term prospects of the UK property market though they perceive uncertainties for businesses over the short to medium term. In a statement issued on Friday, City Developments Limited (CDL) said that the group is still confident of the long-term fundamentals of the UK economy and its strategy of targeting predominantly UK nationals for its residential projects. The group also manages its foreign exchange exposure by matching receipts and payments, and asset purchases and borrowings in each country to create a natural hedge.

UK property prices are expected to fall as the country enters a period of uncertainty after a vote for "Brexit" - but no consensus has emerged among market watchers as to when foreign investors should pile into UK real estate, given the weakness of the pound. Some deem it unwise to jump headlong into the UK property market for now; others think the uncertainty has created an opportunity for gains to be made. OCBC Bank vice-president and senior investment strategist Vasu Menon, for example, advises caution.

When Frasers Hospitality announced 12 months ago that it had acquired British-based hotel chains Malmaison Hotel du Vin (MHDV) for £363.4 million (S$672 million), few people appreciated the immensity of the deal. Even fewer knew about the intensity that went into capturing it. It was the first purchase of a hotel chain by Frasers, which had previously grown by purchasing assets on a piecemeal basis. By acquiring MHDV, the hospitality arm of mainboard-listed Frasers Centrepoint (FCL) gained access to a stable of 29 upscale lifestyle boutique hotels under the Malmaison and Hotel du Vin brands and put it well on course to meet its global target of 30,000 apartment units and rooms by 2019.

He set out to solve personal issues he had faced as a foreigner and ended up providing solutions to other newcomers to Singapore. Mr Jonathan O'Byrne, 30, who was born in the Republic of Ireland and spent 20 years in the Middle East, today helps enterprising expatriates who need only a small workspace to pool together their resources. His company, Collective Works, opened its second co-working office on the entire 12th floor of Capital Tower in March. Not too bad for someone who was labelled a "trailing spouse" when he came here with his partner, who was posted to Singapore in 2010. And, no, he wasn't a homemaker. He was running a branding and communication business out of a spare bedroom.

Shares of Singapore firms with British operations take a hit after Brexit vote

Shares of Singapore companies with earnings and asset exposure to Britain took a hammering last Friday, in the aftermath of the shock Brexit vote result. It was part of a heavy sell-off across the board, with investors off- loading riskier assets and rushing to safe-haven assets such as gold, the Japanese yen and US dollar. Transport giant ComfortDelGro lost seven cents to close 2.56 per cent lower at $2.67. City Developments (CDL) shed 4.37 per cent to $8.31, while another property player, Ho Bee Land, lost 3.98 per cent to $2.17 and Ascott Residence Trust fell 2.67 per cent to $1.095. Sembcorp Industries closed 3.5 per cent lower at $2.76.

Sabana Shari'ah Compliant Industrial Reit's manager on Friday clarified that it had already decided against continuing with any further credit rating, prior to S&P Global Ratings' decision to lower Sabana Reit's long-term corporate credit rating from "BBB-" to "BB+" with a stable outlook. This was to "avoid incurring unnecessary costs" following a recent amendment to the Code on Collective Investment Schemes - which now allows real estate investment trusts to adopt a single-tier leverage limit of 45 per cent, without the need for a credit rating.

IT may already be too late to sell off holdings in Singapore stocks with exposure to the United Kingdom but investors can still go on the defensive, analysts said on Friday, adding that yield stocks and those linked to gold prices are likely to outperform in the wake of Britain's vote to leave the European Union. They also said that, in general, the Singapore market has become less attractive after the "Leave" result, compared with its Asia-Pacific neighbours and other emerging markets, though they noted that it will still take some time for Britain to hammer out the terms of a formal exit from the EU.

People flocked to money changers on Friday after news of "Brexit" broke, sending the pound down - but for many, it was only to check out the pound-Sing dollar exchange rate. An employee at City Money Changers at Raffles Place, said: "People are asking, but not many are buying. We are not sure if people will buy in the next few days. We'll have to wait and see."

In the lead-up to the United Kingdom's European Union referendum, the Leave campaign was long on playing up fears and short on substance ("Facts no longer seem to matter in campaigns"; last Wednesday). Many of the emotionally charged messages were beset with lies, half-truths and misinformation. These messages might have clouded minds and hearts about what is at stake for the future. For example, there were blatant lies that millions of immigrants, including terrorists, murderers and rapists, will swarm all over the UK. Immigrants, who have been net contributors to the economy, were accused of becoming a long-term burden on the country. Besides fuelling xenophobia, Leave campaigners were also appealing to a narrow view of preserving traditional culture and promoting economic nationalism.

The questions left hanging over Britain's future in the wake of last Friday's shock Brexit outcome will likely continue to shake global financial markets this week, say analysts. "The next question traders will be asking is: What will happen (this) week? More broadly, I expect the European Union (EU) to face political and economic contagion risks," said IG market strategist Bernard Aw. "Growing perception that we could see unbridled contagion spreading throughout the EU will hit the European economies hard, as well as the euro and European equities.

As currency traders trooped into their offices for an extra early start to their work day yesterday, to monitor the results of the referendum, they were like movie-goers at a horror movie, anticipating a good scare but confident of a happy ending. Little did they realise the scale of carnage that was to come as hundreds of billions of dollars were later wiped off the value of shares in global markets. Asian investors had gone to sleep on Thursday night on a confident note after polls showed that the Remain camp had a significant lead. Sterling had rallied to its strongest levels since December last year.

It was a busy 36 hours for bankers and property agents, taking calls from worried customers about their investments in Britain and Europe. Many people wanted to cash out, frightened at how their properties could be affected by the British vote to leave the European Union. Others were more adventurous, hoping to capitalise on the panic in the markets to grab deals on the cheap. Mrs Doris Tan, regional director of London real estate firm Strawberry Star Group, said she has received over 10 calls from each camp. Mr Richard Levene, Colliers International's director for international properties, also received several e-mails from investors looking for buying opportunities. "I see an advantage for buyers from Asia. As long as it's the right product, people will still buy to take advantage of the currency - they could make as much as 20 to 25 per cent on the currency over the next few years."

The Ministry of Manpower (MOM) shares the concerns of Forum writers over the recent workplace fatalities ("Promote safe working practices on the ground" by Mr Paul Chan Poh Hoi and "Communication, enforcement key to ensuring workplace safety" by Mr Lim Boon Khoon; both published last Friday, and "Multipronged approach needed to stem workplace deaths" by Mr Lim Ming Yen; June 4). We agree it is important to share information on workplace accidents promptly so that lessons can be learnt and measures taken to prevent similar accidents.

Singaporeans looking to buy homes in the popular market of Australia may face more hurdles after major Australian banks tightened lending criteria to non-residents in recent months. The Commonwealth Bank said it will no longer approve applications that cite self-employed foreign currency income. "The Commonwealth Bank has tightened requirements for some temporary residents in the areas of self-employed applicants and temporary visas who are seeking to borrow for residential purposes," a bank spokesman told The Straits Times. The lender will also reject foreign-currency income of temporary Australian residents, and temporary Australian residents with Australian-dollar incomes can now borrow only up to 70 per cent of the value of the property, down from 80 per cent previously.

Last September, in the Yuhua flat where she lives alone, widow Lina Teo, 63, slipped and fell while mopping the floor. The incident left her with a broken left wrist - and a sharp awareness of how things could have been worse. "If I fell and couldn't wake up... nobody would know," she says in Mandarin. But today, such an incident would be noticed - by her home itself. As part of the Housing Board's smart home pilot project in Yuhua, motion sensors have been placed outside the bathrooms in Madam Teo's flat. "A lot of old folk fall in the bathroom," she notes. If the sensors detect unusual inactivity - for instance, if she goes into the bathroom and does not emerge for an hour - her younger son will be alerted on his mobile phone.